Market­Follower Strategics

Market­Follower Strategics

Not all runner­up companies will challenge the market leader. The effort to draw away the leader's customers is never taken lightly by the leader. If the challenger's

Competitive Strategies • 533

lure is lower prices, improved service or additional product features, the leader can quickly match these to diffuse the attack. The leader probably has more staying power in an all­out battle. A hard fight might leave both firms worse off and this means the challenger must think twice before attacking. Many firms therefore prefer to follow rather than attack the leader.

A follower can gain many advantages. The market leader often bears the huge expenses involved with developing new products and markets, expanding distri­ bution channels, and informing and educating the market. The reward for all this work and risk is normally market leadership. The market follower, on the other hand, can learn from the leader's experience and copy or improve on the leader's prod­ ucts and marketing programmes, usually at a much lower investment. Although the follower will probably not overtake the leader, it can often be as profitable.­ 5

In some industries ­ such as steel, fertilizers and chemicals ­ opportunities for differentiation are low, service quality is often comparable and price sensi­ tivity runs high. Price wars can erupt at any time. Companies in these industries

avoid short­run grabs for market share because the strategy only provokes retalia­ tion. Most firms decide against stealing each other's customers. Instead they present similar offers to buyers, usually by copying the leader. Market shares show a high stability.

This is not to say that market followers are without strategies. A market follower must know how to hold current customers and win a fair share of new ones. Each follower tries to bring distinctive advantages to its target market ­ location, services, financing. The follower is a primary target of attack by challengers. Therefore, the market follower must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they appear. Following is not the same as being passive or a carbon copy of the leader. The follower has to define a growth path, but one that does not create competitive retaliation.

The market­follower firms fall into one of three broad types. The cloner closely copies the leader's products, distribution, advertising and other marketing moves. It originates nothing ­ it simply attempts to live off the market leader's

investments. IBM's demise started after outsourcing (286 chips from Intel and the MS­DOS operating system from Microsoft) and open architecture allowed low­

cost market entrants to copy its PCs. Dutch flower growers, who dominate the international flower trade, are

facing intense competition from growers in Israel, Kenya and Zimbabwe. They can grow exactly what the Dutch do but, unlike tht: North

Europeans, have no big heating bills, cheap labour and unregulated use of fertilizers. The flood of foreign stems has knocked 40 per cent off rose prices and Dutch growers are increasingly resigned to losing the rose and

carnation trade. 21 '

The imitator copies some things from the leader, but maintains some differ­ entiation with packaging, advertising, pricing and other factors. The leader does not mind the imitator as long as the imitator does not attack aggressively. The imitator may even help the leader avoid the charges of monopoly.

Today's imitators are often retailers making look­alike own brands. The British Producers and Brand Owners Group (BPOGJ was formed in response to own brands aping the market leaders too closely. Sainsbury's highly publicized launch of Classic Cola precipitated BPOd's formation and resulted in the retailer backing off. Other confrontations include Sainsbury's Full Roast (based on Nescafe) and Tesco's Unbelievable low

fat spread (close to Van den Bergh's I Can't Believe It's Not Butter). 27

534 • Chapter 12 Creating Competitive Advantages

Finally, the adapter builds on the leader's products and marketing pro­ grammes, often improving them. The adapter may choose to sell to different markets to avoid direct confrontation with the leader. Many IBM PC look alikes did this ­ Atnstrad was one of the earliest selling its ready and running machines through conventional electrical goods retailers. Js'ow Dell and dan Technologies combine direct selling with excellent customer support. Often the adapter grows into ­A future challenger, as many Japanese firms have done after adapting and improving products developed elsewhere.